Difference Between Straight Line Method And Reducing Balance Method
The main dissimilarities or difference between straight line and reducing balance method of depreciation can be described as follows:
1. Introduction
Straight Line Method: Method of providing depreciation in which a fixed amount of depreciation is charged during the life time of asset.
Reducing Balance Method: Method of providing depreciation in which fixed percentage of depreciation is charged on the remaining book value of assets.
2. Also Known As
Straight Line Method: This method is also known as fixed installment method of providing depreciation.
Reducing Balance Method: It is also called written down value method or diminishing balance method of providing depreciation.
2. Also Known As
Straight Line Method: This method is also known as fixed installment method of providing depreciation.
Reducing Balance Method: It is also called written down value method or diminishing balance method of providing depreciation.
3. Depreciation Amount
Straight Line Method: Depreciation amount is constant or fixed in each accounting period.
Reducing Balance Method: Percentage is fixed but depreciation amount decreases in every accounting period.
4. Simple Or Complex
Straight Line Method: This method is very simple to understand and easy to calculate the amount of depreciation.
Reducing Balance Method: This method is difficult to understand and complex to determine the amount of depreciation.
5. Book Value
Straight Line Method: Book value of the asset will become zero after its useful life.
Reducing Balance Method: Book value of asset never becomes zero in this method.
Also Read:
Also Read:
6. Suitable For
Straight Line Method: It is suitable for assets with minimum maintenance costs and having less chance of obsolescence
Reducing Balance Method: It is suitable for assets having high maintenance costs and high chance of obsolescence.
7. Tax
Straight Line Method: It is not accepted by tax authorities.
Reducing Balance Method: It is accepted by tax authorities.
Straight Line Vs Reducing Balance Method (Comparison Chart)
I hope this post is helpful to understand the difference between straight line method and reducing balance method of providing depreciation and to make comparison between them.
Straight Line Vs Reducing Balance Method (Comparison Chart)
Basis
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Straight Line
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Reducing Balance
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Introduction
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Method of depreciation in which fixed amount is charged annually
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Method of depreciation in which fixed percentage of depreciation is charged on the book value of assets
|
Also Known As
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Fixed Installment Method
|
Diminishing balance method
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Amount
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Always Fixed
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Decreases according to the book value
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Simplicity
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Yes
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No, it is a complex method
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Zero Book Value
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Yes, after the useful life of an asset
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Never becomes zero
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Suitable For
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Assets with less chance of obsolescence
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Assets with high chance of obsolescence
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Applicable For Tax
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No
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Yes
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I hope this post is helpful to understand the difference between straight line method and reducing balance method of providing depreciation and to make comparison between them.
